Clause
17
Rates
of climate change
levy
Mr.
Browne:
I beg to move amendment No. 57, in
clause 17, page 8, line 40, at
end insert—
‘(3) In
sub-paragraph 2(1) of Schedule 6 to FA 2000 after “on”,
insert “the level of carbon dioxide emissions emitted
by”.’.
My
party supports the climate change levy in the absence of a better
alternative, but the amendment proposes the introduction of something
that we regard as a superior alternative—a carbon tax. I shall
explain briefly why we believe that to be the case. The climate change
levy is too complex, it offers too many exemptions and suffers from a
confusion of objectives. It does not apply at a standard rate to each
tonne of carbon, and it applies only to business users. What is more,
several confusing initiatives are used concurrently, such as the
European Union emissions trading scheme, which is compulsory for heavy
industry and the power sector; the United Kingdom emissions trading
scheme, which is a voluntary scheme in which firms are incentivised by
the Government to reduce emissions through trading; and other climate
change agreements between industry and the Government. The amendment
would consolidate the various initiatives and schemes into a more
effective and efficient carbon
tax.
The carbon tax
would apply to all carbon fuels at a uniform rate per tonne of carbon
at the point at which they enter the economy. Our party policy is to
tax emissions from energy supplies, as is done in other European
countries that we often regard as leaders in good practice, such as
Sweden, Norway and the Netherlands, and it would enable us as a nation
to reduce pollution. The proposal is to set the carbon tax to achieve a
level of emissions reduction that is not otherwise achieved through the
emissions trading scheme; to adjust the carbon tax to maintain progress
towards our long-term target of carbon neutrality, with any changes to
the tax notified well in advance to give investors time to adjust; and
to use the revenues to cut other taxes when possible so that the
overall net effect of the tax burden is
neutral.
I
enter one caveat. A reasonable objection has been made about the impact
in the short term on domestic users and those who suffer from what is
commonly
called fuel poverty. Transitional measures would have to be put in place
to ensure that people were not penalised unfairly in respect of their
lifestyle when they could not afford to take an alternative approach.
Nevertheless, for the reasons that I have set out as succinctly as I
could, a carbon tax would be a superior way in which to reach the
objective that we pretty much all share in
Committee. Being
a realist, I do not anticipate that the Committee will be persuaded of
the case for the amendment, however brilliant my speech may, or may
not, have been. It is worth my saying, to save my rising to speak
again, that we support the climate change levy, because it is better
than not having such a levy, and we support increases in line with
inflation. Until that levy is replaced with a more coherent carbon tax,
we will support the arrangements advanced by the
Government.
2
pm
Mr.
Gauke:
We have some sympathy with the objective outlined
by the hon. Member for Taunton, but whether that is because of the
brilliance of his speech or otherwise I leave others to decide.
However, we share the view that the climate change levy is an imperfect
tax. My right hon. Friend the Member for West Dorset (Mr.
Letwin) once said, in a typically erudite allusion, that it reminded
him of what history masters used to say about the Holy Roman empire: it
was neither holy nor Roman nor an empire. The climate change levy is
not really about climate change: it is a tax on energy. Although that
might be an aspect of reducing carbon emissions, it is not the complete
story, because if we want to reduce carbon emissions we need to
distinguish between sources of energy that produce a lot of carbon and
those that do not. The climate change levy does not sufficiently
address that matter and is therefore flawed. I have a lot of sympathy
with what the hon. Member for Taunton said and with the objective
proposed in amendment No.
57.
Others
have criticised the climate change levy: the Royal Commission on
Environmental Pollution described it as a blunt instrument, and the
Select Committee on Environmental Audit also made a number of
criticisms. The levy is flawed and is not ideal, so there is
accordingly a need to reform it into a carbon tax, which it is not at
the moment, rather than an energy tax. Although I have expressed
sympathy for the amendment, whether it does everything that the hon.
Member for Taunton would like it to do is another matter. But as far as
the objective is concerned, we hope that the Government will listen and
reform the climate change levy and replace it with a genuine carbon
tax.
Kitty
Ussher:
I hear what the hon. Member for Taunton says, but,
unfortunately for him, his amendment will not work, regardless of how
sophisticated his rhetoric
is.
Mr.
Browne:
It is pretty
sophisticated.
Kitty
Ussher:
The hon. Gentleman’s
comment will go into Hansard. However, under his amendment, the
levy would be based on emissions rather than on energy supply. There
would be a technical problem with doing that—as well as legal
problems—notwithstanding the fact that amending the introduction
to the clause is
insufficient to achieve the legal outcome that is required. However, I
take his amendment in the spirit in which it is intended, so I will
overlook that problem. The real problem is that the amendment would be
contrary to European Union directive 2003/96, which requires a tax on
energy supply rather than
emissions.
The
main problem that I urge Committee members to consider stems from the
fact that our climate change levy has been incredibly successful as
devised. An independent analysis by Cambridge Econometrics, published
at the time of the 2005 Budget, estimated that it had delivered
emissions savings of more than 16 million tonnes of carbon up
to that point, that by 2010 it would save some 3.5 million tonnes of
carbon a year—well above initial estimates—and that it
would reduce energy demand in business and public sectors by some 15
per cent. a year. The hon. Gentleman’s amendment is therefore
unnecessary.
Mr.
Browne:
I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Mr.
Gauke:
I beg to move amendment No. 68, in
clause 17, page 8, line 40, at
end insert—
‘(3)
The Treasury shall publish, not later than the date
of the Budget 2009, an estimate, audited by the Independent Committee
on Climate Change (as established by the Climate Change Act 2008), of
the carbon emissions savings resulting from the changes to climate
change levy contained in this
section’.
There
is no need to repeat all the arguments that we have just heard about
the climate change levy in general, although my amendment addresses one
aspect of what we were considering: its effectiveness in reducing
carbon emissions. Everything that the hon. Member for Taunton and I
have said about the flaws in the climate change levy in that context
should be borne in mind. The Minister quoted the Cambridge Econometrics
report. I have a quote from Cambridge Econometrics—I believe it
is from the same report, but I apologise if that is not the
case—which observes that the relative decline in UK
energy-intensive manufacturing sectors suggests that many of the energy
efficiency and carbon saving targets would have been achieved without
carbon change agreements. It says of the climate change
levy:
“Only for
one sector did we find that the CCA would have been missed had no
climate change levy ever
existed.”
It is
also worth noting the observations made by the Environmental Audit
Committee, which acknowledged that the tax is on course to save 12.8
million tonnes of CO2 by 2010, according to a Government
report on the scheme’s impact. The Committee also viewed the tax
as the second largest element of the Government’s climate change
programmes in terms of carbon
saving:
“the CCL
significantly raised awareness of potential carbon savings in the
business environment before implementation. This resulted in the
majority of savings being made before the tax was actually
introduced.”
Is
the climate change levy as effective as it might be in reducing carbon
emissions? If we wished to do so over the years ahead, a review would
be helpful. The Government should consider that on an ongoing basis to
see whether the climate change levy is working as effectively as it
might. That is why we have tabled amendment No. 68, which requires the
Government to make
“an
estimate, audited by the Independent Committee on Climate
Change...of the carbon emissions savings resulting from the
changes to climate change levy contained in this
section”,
so that we can see
whether we are making as much progress as we should. That would inform
the debate about whether the climate change levy should be replaced by
a carbon tax, as two of the three major parties
advocate.
Kitty
Ussher:
In a sense, we agree with the
spirit of the amendment, although we are not prepared to accept it, for
reasons that I shall explain. The hon. Gentleman was right to discuss
the work by Cambridge Econometrics. I will go back and read the report
again, but what Cambridge Econometrics said to us was that, in its
analysis, the climate change levy would save 2.8 million tonnes per
annum and reduce energy demand in the business and commercial sector by
22 per cent. by 2010. It is an independent, well-respected consultancy,
and it used peer-reviewed econometric methodology, so one cannot get
much better than
that.
The
amendment requires that we publish, no later than the date of the
Budget 2009, our own estimate, audited by the independent Committee on
Climate Change. There are two problems with that. First, now is not the
time for a further review, as the independent study has just been
completed. It is better to do such work independently. A lesser, but
relevant, point is that the independent Committee on Climate Change was
not set up to audit Government forecasts or assumptions, so it would
not consider that to be in its remit. I have no problem with the
general point that we should always keep under active review the effect
of our policies. People would expect us to do that across all
Government policies, and we will continue to do so in the medium and
long term with this policy. However, the amendment will not achieve the
spirit of what it intends to
achieve.
Mr.
Gauke:
This is one of those rare occasions when the
Government do not support a
review.
Mr.
Browne:
Or a Conservative
policy.
Mr.
Gauke:
Indeed. I know that the hon. Member for Taunton
often has fun claiming that the Liberal Democrats are the real
alternative. He has given a new definition to “alternative
comedian” in the course of our
proceedings.
Mr.
Mark Field (Cities of London and Westminster) (Con): They
are neither real nor
alternatives.
Mr.
Gauke:
Either that or the comedic
alternatives—I am not sure. I am satisfied for the moment with
the Economic Secretary’s remarks. I beg to ask leave to withdraw
the
amendment.
Amendment,
by leave,
withdrawn.
Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke:
I have one quick question. Should the climate
change levy be seen as revenue neutral? Should money raised by the
climate change levy be used to reduce taxes in other areas, or for
items of expenditure of a related nature? I believe that when the levy
was introduced it was supposed to be revenue neutral. At the time,
employers were compensated for the levy with a reduction in national
insurance contributions, but since then, their national insurance
contributions have increased. Is it the Government’s policy that
the climate
change levy should be neutral, and that increases in that area would be
offset by cuts elsewhere? There is a problem with the credibility of
green taxes, which are viewed as stealth taxes. If it were clear that
additional revenue raised in that area would be used to reduce taxes in
other areas, the suspicion and cynicism would not be so
strong.
The
Chairman
Mark Field: intervention;
short.
Mr.
Field:
I shall try to ensure that it is both short and an
intervention. You may have other views, Sir
Nicholas.
My hon.
Friend made an interesting point, and I would be interested to hear
what the Economic Secretary has to say in that regard. Does my hon.
Friend agree with me that if climate change and other environmental
taxes are genuinely to do what we expect, they should not necessarily
be revenue-neutral? They are there to change behaviour, and therefore
any Government should be relatively open-minded about the
revenue.
Mr.
Gauke:
I am grateful to my hon. Friend.
There are two issues here. One is whether the use of an additional
green tax will be offset in another area. The other is that in
formulating financial projections of the revenue to be raised from a
green tax there is the issue that it will alter behaviour. Depending on
the circumstances, such a tax may ultimately result in reduced revenue
over the years. My hon. Friend made an important point. I would be
grateful for the Economic Secretary’s clarification as to the
Government’s policy in that
area.
2.15
pm
Kitty
Ussher:
I shall briefly explain—because we have not
yet done so—exactly what clause 17 does. Simply, it legislates
for the revalorisation of the climate change levy rates announced in
the Budget 2008. As stated in the Red Book at the time, that maintains
the environmental effect of the tax after taking account of
inflation.
I am
delighted to be able to answer the hon. Gentleman’s point. When
the climate change levy was introduced in April 2001, it was made clear
that the purpose was to recycle the revenue back to business, primarily
through the 0.3 per cent. reduction in employers national insurance
contributions introduced at the same time as the
levy.
The
hon. Gentleman mentioned “stealth taxes”. Like the
Exchequer Secretary to the Treasury, it always makes me laugh when
people start talking about stealth taxes because, by definition, if
they are talking about them, they cannot be very secret. Cab drivers
have a particular habit of cornering me on that one, and I am always
tempted to say, “If it is so secret, how do you know about
it?”. I can reassure the hon. Gentleman that no extra revenues
are secretly being siphoned off elsewhere. I do not know if this has
been said before, but the levy has consistently raised less than the
value of the national insurance contributions cuts that it was designed
to fund, so quite the opposite is the case. I hope that that will be
sufficient to reassure the hon. Gentleman.
Question put and agreed
to.
Clause 17
ordered to stand part of the Bill.
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